Case Study

The Future of Carbon Pricing in the UK

Vivid Economics analysed different options for the UK’s cornerstone carbon pricing policy after its departure from the EU ETS. Vivid analysed advantages and disadvantages of a UK ETS linked to the EU ETS, a standalone UK ETS and a carbon tax. The different options were assessed on key criteria such their role in the climate policy mix towards net zero, the creation of a well-functioning market that provides efficient emissions reductions while maintaining competitiveness, and effective governance on revenue use and evaluation. Vivid leveraged knowledge and experience of a wide range of stakeholders and academic literature to identify the economic rationale for carbon pricing and practical lessons from the implementation of carbon pricing globally. This was supplemented by quantitative evidence provided by the BEIS Carbon Price Model (BCPM) which provides carbon price outputs based on varying design choices on market scope and cap and assumptions of market behaviour. The results were discussed in a broad workshop with stakeholders, academics and government officials. This report formed the technical basis of the CCC’s response to the UK government on the future of carbon pricing.